A Long Way Since 1947, But Some Speed Bumps Still Ahead On The Economic Front

Independence Day 2023: As the nation celebrates its 77th Independence Day on August 15, it's a good time to reflect on the key economic hurdles and the speed bumps on the road ahead

Indian rupee has seen a mixed performance against other major currencies, however, the currency declined significantly against the US dollar.

Source : Getty

Independence Day 2023: India has come a long way in its economic journey since Independence. In 1947, the country was a poor, agrarian economy with a low literacy rate. It transformed into a services sector-oriented economy, which contributes over 50 per cent to the GDP. Today, India is one of the fastest-growing economies in the world, with a growing middle class, a vibrant IT sector, and its manufacturing industry opening up as a global hub. This upward trajectory is tied to ambitious aspirations, notably the pursuit of achieving the stated goal of becoming a $5-trillion economy.

India has already emerged as the world’s fifth-largest economy, with a GDP of $3.5 trillion in 2022. S&P Global this August projected India to grow by an average annual rate of 6.7 per cent to March 2031, driven by manufacturing and services exports and consumer demand, despite short-term challenges from rate hikes amid global slump. The rating agency retained its earlier forecast of 6 per cent growth for the current fiscal year ending March 2024, and even at this rate India will be the fastest growing economy among the G20 nations. However, as the Indian economy stands on the precipice of further expansion, it is confronted by a series of challenges and hurdles that need attention and decisive action. Though India is one of the brightest spots in the global economy, it has few areas that warrant special attention, and these include high levels of inflation, an unstable rupee, and a large current account deficit. 

As the nation celebrates its 77th Independence Day on August 15, it's a good time to reflect on the key economic hurdles and the speed bumps on the road ahead. One of the biggest challenges India is facing is the population density. The country has the highest population densities in the world, which puts a lot of pressure on natural resources. Infrastructure, unemployment, poverty, labour laws and corruption are some of the other stumbling blocks. 

Pandemic & War

The Covid-19 pandemic dealt a massive blow to the world and Indian economies. As the countries were gradually recovering from the pandemic, the Russia-Ukraine war worsened the situation. India did well and came out of the pandemic, but supply chain bottlenecks still persist mostly because of the ongoing geopolitical turmoil. Western sanctions on Russia and surging crude prices hit the Indian economy too.

Recession

The IMF predicted that one third of the global economy will be in recession this year. The IMF chief cautioned that 2023 will be "tougher" than last year as the US, EU, and China will see their economies slow down. Global recession occurred because of Covid-induced lockdowns and Russia-Ukraine war. Most global IT services firms laid off their employees as major economies like the US, China, and in other European countries were in recession.

Rate Hikes

Economic growth came under threat after aggressive rate hikes by the US Federal Reserve to tackle soaring inflation. Rate hikes can have a ripple effect on India. Energy crisis created due to the war and strengthening of the dollar have compounded India’s problems.

Inflation

The retail inflation in India is again on the higher side, on higher vegetable prices. The RBI’s rate setting panel in its latest MPC has made an upward revision to its inflation forecast for 2023-24, raising it by 30 basis points to 5.4 per cent. Driving the full-year inflation forecast hike was that for the second quarter, which is now seen at 6.2 per cent, a full hundred basis points higher than previously expected because of a sharp hike in vegetable prices.

Depreciating Rupee

The value of the rupee against the US dollar has depreciated in the last few months. Though the Indian rupee has seen a mixed performance against other major currencies, it fell significantly against the dollar. On October 19, 2022, the rupee tanked as much as 71 paise to hit a low of 83 against the US dollar, following consistent strengthening of the greenback. While the domestic currency recovered somewhat later, the rupee still hovers around 82 against the dollar.